For trading in India Stock Market you need to Know what is Demat Account 

What is Demat Account ?

Demat Account is the nickname of dematerialized account. In the stock market of India, if an investo wants to trade online then holding a demat account becomes mandatory.

As we open a bank account to save money in digital format to do transactions easily, similarly we open a demat account to save our shares and securities at a same place in a digital format to do trade without any hassle. It is the duty of each financial firm which is enrolled in stock market to provide securities to its customers in both physical and dematerialised way.

Physical securities are referred as the actual certificates which define the number of shares of a company possessed by an individual. Transformation of these physical certificates in a digital manner is termed as dematerialization and the account where they are stored is termed as demat account.

Through these DP’s an investor can avail the services of a depository.  A depository enrolls DP legally by signing an agreement between the two under Depository Act law and provides them a Unique Identification Number called as DP-ID.

As the term holds depository is a place where we can save our things. In the stock market of India depository is an institution that controls and safeguards our securities, shares, mutual fund units etc and retain the data of all the trades done by an individual in an electronic form. It provides its services through DP to an investor and allows them to do transactions of securities.

There are two depositories enlisted in SEBI

• National Services Depository limited (NSDL)
• Central Depository Services limited (CDSL)

SEBI has specified the minimum net worth of a depository which is around 100 crores.

Process of Opening Demat account

• Select a depository participant from the list of registered DP’s provided by NSDL and CDSL on their official website.
  
• DP will provide an account opening form, fill it up, attach all necessary documents required and sign an agreement with DP prescribed by depository.
  
  
• The copy of an agreement will be given to the investor containing all rules and duties of DP and investor as well as scheme of charges for their future reference.
  
  
• Now, After account is opened, DP will provide its investor with a unique account number called as Beneficiary Owner Identification number which an investor needs to quote every time for doing trade.

Documents required to open a Demat Account

The above process includes two copies of passport size photograph, Pan card, Aadhar card, Driving licence, Voter ID card, Passport copy, Ration card, Electricity bill, Telephone bill and saving bank account passbook copy/ cancelled cheque quoting IFS code and MICR code.

As compared to other firms Zerodha charges nominal fees for Demat account opening which is Rs. 100 to be given only one time. Other charges which Zerodha levies on its customers are pocket friendly in which Account maintenance charge is Rs.300 per annum and transaction charges are also minimal which depends on the trade done.

Procedure of dematerialisation

Dematerialisation is done by filling a Demat Request Form known as DRF which is possessed by every DP. After filling up the form, an investor have to submit all his physical certificates of securities to DP along with the DRF. Every security contains International Security Identification Number termed as ISIN. A separate DRF is to be filled for every ISIN and needs to be quoted in the former. A DP will save all the physical certificates into the investor’s Demat account in the digital format and will update them time to time.

Merits of having Demat account

• No need of holding securities in paper form which is difficult to maintain. Securities in digital form are suitable to hold and easy to access.
  
  
• Transfer of securities can be done instantly without the need to stamp duty, thus reducing transaction charge.
  
• Safer to use in comparison to paper shares.
  
  
• Time-saving with least usage of paper-work.
  
  
• Least risk of theft, forgery, mutilation etc which usually occur in physical form.
  
  
• Quick correspondence to shareowner’s, no untimely delay in share registration.
  
  
• Demat account can be opened with a zero balance.
  
  
• Any number of shares can be transferred even a single share can be purchased and sold which avoids odd lot problems.
  
  
• Can carry both debt and equity investments.
  
  
• Any change in address is noted by a DP which automatically gets updated with all the companies in which an investor bears his securities, thus minimising the communication with each firm separately.
  
  
• DP is responsible for transfer all the securities into an investor’s Demat account, thus removing the requirement for notification of companies.
  
  
• A trader doesn’t need a particular location to do trade.
  
  
• If a share accrued from any split/merger and bonus then it automatically gets added into the Demat account.
  
  
• Depository system has enhanced the productivity of registrars, secretarial department and transfer agents of a company due to the reduction in cost of printing and distribution. Thus, offers effective services to shareholders and investors.

Demerits of having Demat account

• Quite complicated process as agreements are required at various levels during dematerialisation.
  
  
• Many times buying and selling of dematerialised securities become unconstrained.
  
  
• Capital market regulator has to keep a close track on trading in demat securities in order to prevent its share-owners from the harmful effects of trading.
  
  
• Requires a close watch on the stock brokers as they can alter the stock market.
  
  
• Until all the shares are liquidated, an investor cannot close the demat account and have to continuously pay all the charges associated with it.